Today we’re talking about how much home you can afford, what type of loan to get, and how the rising interest rates affect your loan. 

There are a couple of different types of loans out there. First, you have VA loans. With VA loans, veterans, service members, and their surviving spouses can purchase homes with little to no down payment and no private mortgage insurance and generally get a competitive interest rate. The loan provides up to 100% financing on the value of a home. 

Next, FHA loans are often called “first-time homebuyer loans,” but you don’t need to be a first-time homebuyer to utilize an FHA loan. This time of loan has a lower downpayment of 3.5% and a lower credit score of 580 or higher. You can still get an FHA loan with a 510 score, but you need to put down at least 10%. 

On an FHA, you also need to pay Private Mortgage Insurance (PMI).

Another option is conventional loans, which typically have a downpayment of anywhere between 3% and 20%. In a previous video, we talked about conventional loan limits, you can learn about them here. 

For conventional loans, if you put down less than 20% you will have to pay private mortgage insurance (PMI).

You’ll also need to keep in mind that you have to pay the closing costs upfront. For FHA and conventional loans, closing costs are about 2.5-3.5% of the purchase price.

Another important factor that affects loans is interest rates. They’re changing almost every day, but below you can see a breakdown of the total monthly cost for two different interest rates. 

As you can see, even though the home price stayed the same, the total monthly payment rose $241 more due to the rising interest rate. You need to keep in mind that interest rates don’t jump a full point, they do it in increments but this proves you shouldn’t wait to buy. 

If you have any questions about loan types or interest rates, reach out to an agent on my team and we’ll put you in touch with a lender. We’d be happy to help you decide what the best loan for your situation is!